Actual Cash Value (ACV) will replace your damaged or stolen items, minus depreciation at the time of the loss. Depreciation is calculated based on the items Replacement Cost and the expected life span. For example, let’s say you have a television you bought three years ago that was lost in a fire, and a TV of like kind is sold today for $1,000 (the replacement cost.) The TV has a life span of 10 years; therefore, is going to lose 10% of its value every year. Due to the age of your TV, at the time of the loss, your TV lost 30% of its value, and therefore the Actual Cash Value (ACV) is $700.
This calculation can be applied to most of the dwelling coverages, too. Take a roof for example -- if you have a 25-year shingle your roof value will depreciate by 4% per year. If you have a loss that requires you to replace your roof when it is 12 years old, you will subtract 48% (12 years x 4%) from the replacement cost. One thing to note is that the condition of item(s) may be a contributing factor when determining the ACV of your item(s).
Replacement Cost will replace your damaged or stolen items without factoring in any depreciation. For example, if you have a couch that you paid $5,000 for five years ago that was lost in a fire, and a couch of like kind is sold today for $6,500, the replacement cost of the item is $6,500.
The coverage can also be applied to your dwelling coverages. If your home burns the Replacement Cost coverage on your Homeowners policy will replace your home exactly as it was prior to the loss. Think of this as a coverage that provides new for old.
Regardless of your coverage type, the more thoroughly you keep up with home inventory (regularly documenting your valuables via photo/video, and keeping track of your receipts digitally) the better when it comes to filing a claim for losses.
Your Friends In The Insurance Business at Midland's Ieuter Insurance Group can answer your home insurance coverage questions.
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